Executives may want to avoid the industrials sector if incentivised to reduce carbon emissions
04/10/2024
mail.png

Ahead of our GECN Group’s global report on executive climate change incentives, we have conducted analysis on which Australian sectors have seen the biggest change in reported emissions over the past 3 years. The analysis highlights the difficulty some executives may face in reducing carbon emissions to realise incentive payments. Whilst it is clear several industries are making progress in reducing emissions, a significant proportion of companies in certain industries are not. This presents challenges for carbon exposed companies establishing incentive targets for a net reduction in emissions, rather than a simple reduction in emissions growth rates.

Our analysis required a minimum of 3-years of reported greenhouse gas (GHG) emissions data, resulting in only sixty-five companies of the ASX 100 being included. Scope 3 data was excluded due to insufficient disclosures from companies in the sample as they still come to terms with data complexity and integrity issues.

Figure 1 below shows the median three-year change in greenhouse gas (GHG) emissions (Scope 1, Scope 2, and combined Scope 1 and 2 as a proxy for a ‘carbon footprint’) by sector. Sectors with less than 4 disclosing companies were excluded.

Figure 1: Median 3-year change in GHG emissions by sector

All sectors saw a median decrease in scope 2 emissions. The Industrials sector saw a median increase in scope 1 emissions and combined scope 1 and 2.

Scope 1 represents emissions directly produced by a company resulting from the activities within a business’ facilities. Scope 2 represents emissions produced from the electricity used to power a business’ facilities.

How does this relate to executive incentives?

Figure 2 below shows sectors in the ASX 100 with a GHG emission measure within an incentive plan for FY23.

Figure 2: Percentage of companies within a sector with a GHG emission measure within the company FY23 incentive plan

Forty-two percent of the ASX 100 utilised a GHG emission measure in FY23. The Energy sector not surprisingly had the highest percentage of companies with GHG emission measures at 75% whilst the Information Technology sector had the lowest at 0%.

Despite the Industrials sector having 46% of companies with a GHG emission measure, the carbon footprint increased over the 3-year period. Conversely, the Financials sector had only 16% of companies with a GHG emission measure, experienced the greatest reduction in carbon footprint.

The Energy and Real Estate sectors saw an expected pattern of high GHG emission measure usage and significant decrease in carbon footprint. That leads to the question: at what point is emissions reduction expected as a business-as-usual activity?

The number of companies within the ASX 100 who disclosed 3-year GHG data is provided in table 1.

Table 1: Number of companies disclosing 3-year GHG data

Sector

Scope 1

Scope 2

Scope 1 + 2

Communication Services

1

2

2

Consumer Discretionary

2

2

2

Consumer Staples

2

2

2

Energy

4

4

4

Financials

13

13

13

Health Care

4

3

3

Industrials

10

10

10

Information Technology

2

2

2

Materials

16

16

16

Real Estate

9

8

8

Utilities

2

2

2

 

© Guerdon Associates 2024
read more Back to all articles